tv Today in Washington CSPAN February 4, 2011 6:00am-7:00am EST
roach from georgetown university. "washington journal" is live on c-span every day on c-span at 7:00 eastern. a couple of live events to tell you about today -- a congressional oversight committee examines the effect that commercial real estate losses could have on bank stability. members will hear from representatives of the fdic and the federal reserve. that is live on c-span at 10:00 a.m. eastern. tonight on c-span, former alaska governor sarah palin speaks to a young america's foundation event in santa barbara, calif. marking the 100th anniversary of the birth of ronald reagan. that is at 11:00 p.m. eastern. >> they hold an environment of politics that had come apart. it had become polluted and destroyed and violent. >> documentary producer nick cowett on hubert humphrey.
>> the reason was to show another side of this. ever remembers -- everyone remembers hubert humphrey as someone was looking the bits of lyndon johnson. he was under tremendous pressures. >> that is sunday night at 8:00 on c-span. >> sunday on book-tv's "in depth." the founder of the american spectator magazine has written over half a dozen books. his latest is "after the hanover." join our 3 our conversation with your e-mails, phone calls, and tweets live sunday at noon eastern on book-tv on c-span 2. >> federal reserve chairman ben bernanke says the economy should grow rapidly this year.
but that it will likely take several years before the unemployment rate falls to normal levels. he was at the national press club in washington for one hour. >> good afternoon and welcome to the national press club. i am president of the national press club. we are the world's leading professional organization for journalists and we are committed to our professions future for our programming and by foster in a free press worldwide. for more information, please visit our website at www.press.org. for all of our members worldwide, i would like to welcome our special speaker today and all those attending the event which includes guests of our speakers as well as
working journalists. would like to welcome cspan and public radio. you can follow the conversation on twitter with the hashtag ncpluch. we will have audience questions as much as possible and would like to introduce our guest. we begin with keith epstein. scott sporey , rick dunham, donna linewand, timothy allman, and michelle smith, assistant to the chairman with the federal reserve. charbonneau, bob cardin, thank
you. dave skidmore, allyson fitzgerald, she is with bloomberg. she is vice chair of the npc speaker committee. beckner.ve that is our head table and you can give some applause. [applause] it has been quite a journey for our guest speaker today. the middle-class son of a pharmacist and schoolteacher, he has been an economics professor, the head of the council of economic advisers under president bush, and now our nation's chief central banker. he became a chair in 2006 just in time for the great recession. he was letter reads as nominated by president obama to serve another four-year term. reflecting his stewardship in
crisis, he was named time magazine's man of the year in 2009. this journey started south of washington d.c.. you can't help but notice a -- a colorful billboards as you approach the border between north and south carolina, hawking south of the border. he waited tables after graduating from high school. he got his bachelor's in economics from harvard and a ph.d. from mit and taught at princeton and stanford as well as nyu and mit. chairman bernanke became an expert on the causes of the great depression. that expertise was key in responding to the 2008 economic meltdown. mr. bernanke's willingness to use the power of the fed to intervene in the financial markets is credited by many with keeping the great recession from becoming the great depression. those measures have been controversial. ron paul has re-introduced
legislation that would require a full audit of the fed. the legislation is seen as a challenge to the fed pause a goal and tradition of political independence. some conservative economists and some fellow governors think mr. bernanke paused efforts may have gone too far including the decision to inject another $600 billion into the economy to foster the recovery. is the fed courting inflation in response to a persistently high unemployment. the european central bank expressed the view that longer- term price pressures remain contained despite rising energy commodities cost per president jean-claude trichet repeated the very close monitoring of inflation as warranted. i am particular grateful that chairman bernanke agreed to be our first luncheon serious guest of my term. please give a warm national press club welcome to chairman ben bernanke. [applause]
>> thank you. thanks, and good afternoon. >> i am pleased to be here and to have a conversation with journalists who write about economic policy from our nation's capital. your job is not easy but it is essential. virtually every american is affected by developments in economics and economic policy. contemporary economic issues are highly complex and a few non- specialists have the time or the background to master these issues on their on. the public has to rely on built- in reporting, clear thinking, and lucid writing of reporters determined to go beyond doing bumper stickers and sound bites to help people understand what they need to know to make a decision about in their personal finances and at the polls. these are weighed response
abilities and reporters take them seriously. thank you for what you do. today i will provide a brief update on the economy and how i expected to eve ball. i will return to implications of monetary policy and finally, like to discuss the daunting fiscal challenges that we face as a nation. the economic recovery that began in the middle of 2009 appears to have strengthened in recent months although to date, growth has not been fast enough to bring about significant improvement in the labour market. the early phase of the recovery in the second half of 2009 and early 2010, was largely attributable to the stabilization of the financial system, the effects of expansionary monetary policies, and a strong boost to production from businesses rebuilding their depleted inventories. economic growth slowed to give
italy last spring as the impetus from its fiscal stimulus diminished and as the european debt problems grow. more recently, we have seen increased evidence that a self- sustaining recovery of consumer and business spending may be taking hold. we learned last week that households increased their spending in the fourth quarter in real terms at an annual rate of more than 4%. a significant portion of this pickup reflected strong sales of motor vehicles, the recent gains of consumer spending look to have been recently broadbased. business investment and new equipment and software grew robustly over most of last year as firms replace aging equipment and the demand for their products and services expanded. in contrast, in the housing sector, a overhang of vacant and foreclosed homes begins -- weighs heavily on home prices and residential construction. overall, improving household and
business confidence, accommodative monetary policy, and more support of financial conditions including an apparent increase in the willingness of banks to make loans seems likely to lead to a more rapid pace of economic recovery in 2011 than we saw last year. well indicators on spending and production have been encouraging, the job market has improved only slowly. following the loss of about 8.5 million jobs in 2008 and 2009, private-sector employment showed gains in 2010. however, these gains were barely sufficient to accommodate the influx of recent graduates and other new entrants to the labour force and therefore not be enough to signal the plea reduce the overall unemployment rate. recent data provide some grounds for optimism on the employment front initial claims for unemployment trends have generally been trending down and indicators of job openings in
firms hiring have improved. even so, the output growth likely to be moderate for a while and employers reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level. until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established. on the inflation front, we have seen significant increases in highly visible prices, notably gasoline. the prices of many commodities have risen lately large the as a result of strong demand from fast-growing emerging market economies couple in some cases with constraint on supply. nevertheless, overall inflation remains quite low. over the 12 months ending in december, prices for all the goods and services purchased by households increased by only 1.2%, down from 2.4%.
to assess underlying trend in inflation, economists follow several alternative measures of inflation. one such measure is a core inflation which involves food and energy and therefore can be a better predictor of where overall inflation is headed. core inflation was only zero 0.7% in 2010 compared with around 2.5% in 2007, the year before the recession began. wage growth has slowed as well with average hourly earnings only increasing 1.8% last year. these downward trend in wage and price inflation are not surprising given the substantial slack in the economy. although economic growth will probably increase this year, we expect the unemployment rate to remain stubbornly above and inflation to remain consistently below the rates we have judged with our mandate from the congress to foster maximum employment and price
stability. under such conditions, the federal reserve would typically ease monetary policy by reducing the target for short- term policy interest rate, the federal funds rate. however, the target range for the faa's rate has been near zero cents december, 2008. economic conditions are likely to warrant an exceptionally low target rate for extended period. for the past two years, we have used alternative tools to provide monetary accommodation. in particular over the past two years, the federal reserve has further ease monetary conditions by purchasing a longer-term securities on the open market. from december, 2008 through march, 2010, we purchased almost $1.70 trillion in longer- term treasury agency and agency mortgage-backed securities. in august, 2010 we began reinvesting the proceeds from securities that were mature or redeemed into longer-term treasury securities to keep the
size of our security holdings roughly constant. around the same time, we began to signal to financial markets that we're considering providing additional monetary policy accommodation by considering further purchases. in early november, we announced a plan to purchase an additional $600 billion in longer-term security treasuries by the middle of this year. all these purchases are settled to the banking system with a result that the positive -- that depository institutions hold a revolt by reserves with the federal reserve. large-scale purchases of longer- term securities are a different monetary policy told them the more familiar approach of targeting the federal funds rate, the two types of policies affect the economy in similar ways. conventional monetary policy works by lowering market expectations for short-term interest rates which in turn reduces the current level of longer-term interest rates and contribute to an easing in broader financial conditions.
these changes, by reducing borrowing costs and raising asset prices, bolstered household and business spending and increase economic activity. by comparison, the purchases of longer-term securities have not affected very short-term interest rates would remain close to zero. instead, they put downward pressure directly on longer-term interest rates. by easing conditions and credit in financial markets, these actions encourage spending by households and businesses to essentially the same channels as conventional monetary policy thereby strengthening the economic recovery. a wide range of market indicators supports it the view that the securities purchases have been effected at easing financial conditions. our example since august, when we announced our policy, and signaled we were considering more purchases, equity prices have risen significantly while utility in the equity market has fallen. corporate bond spreads have
narrowed and employment -- inflation compensation has risen from low to more normal levels. yields on five-10-year security levels declined markedly as markets priced in fed purchases. these yields subsequently rose as investors became more optimistic about economic growth and as traders scale back their expectation of future security purchases. all of these developments are what one would expect to see and monetary policy becomes more accommodative whether it is for conventional or less conventional means. interestingly, these developments are remarkably similar to those that occurred during the earlier episodes of policy easing notably in the months following the march, 2009 announcement of expansion of purchases. financial markets responded in similar ways to each of these policy actions. that lends credence to the view that these actions had the expected effect on financial markets and are thereby
providing significant rate -- support to job creation and the economy. my colleagues and i have said we will review the asset purchase program regularly in light of incoming information and will adjusted as needed. in particular, it bears emphasizing that we have the necessary tools to smoothly and effectively exit from the asset purchase program at the proper time. in particular, our ability to pay interest on reserve balances will allow us to put upward pressure on short-term interest rates and tight monetary policy when required even of bank reserves remain high. remain high. moreover, we've developed additional tools that allow us to drain or mobilize bank reserves as we facilitate the smooth withdrawal of policy accommodations when the conditions warrant. for and by redeeming or selling the securities we told.
let me turn to the fiscal policy. fiscal policy makers also face significant challenges. the federal budget deficit has expanded to an average of more than 9% of the gross domestic product over the past two years. up from the average of 2% of gdp during the three years prior to the extraordinarily wide deficit largely reflects the weakness of the economy along with actions that the administration and the congress took to ease the recession and the steady financial markets. however, even after economic and financial conditions return to normal the federal budget will remain on an unsustainable path with the budget gap becoming increasingly large overtime unless the congress enacts sycophant changes in fiscal programs. for the civil come under plausible assumptions of fiscal policies might evolves in the absence of major legislative changes, the congressional budget office projects the deficit to fall from about 1% of gdp currently to roughly 5% by
2015 but then to rise to bout 6.5% p by the end of the decade. after that, the cbo projects the budget outlook to deteriorated more rapidly with federal debt held by the public regionalist 90% of gdp by 2020 and 150% of gdp by 2013 from about 60% at the end of the fiscal year 2010. the long-term fiscal challenges nfronting the nation are especially daunting because they're stly the product of powerful underlying trend is, not short-term temporary factors. the two most important driving forces to the federal budget are the aging of the u.s. population and rapidly rising health care costs. indeed the cbo projects the federal spending for health care programs which include medicare, medicaid and subsidies to cuce purchase health insurance and new entrants exchanges will roughly double as a percentage of gdp over the next 25 years. the ability to control health
re costs while still providing high-quality care to those who need it will be critical for bringing thefederal budget onto a more sustainable path. the retirement of the baby boomergeneration will also strain social security as the number of workers paying taxes into the system will rise more slowly than the number of people receiving benefits. currently there are about five individuals between the ages of 20 to 64 for each person age 65 and older. by 2013 by most of the baby boomers will have retired the ratio is projected to decide about three. overall system and pressures as a seat with social security are considerably smaller than the pressures associated with the federal health care programs but they are still mobile. the projections by the time do not aount for the likely economic effect of high debt and deficits. but the government debt and deficits were to grow at the pace and envisioned the economic
and financial effects would be severe. sustained high rates of government borrowing would drai the fund away from private investment and increase our debt to foreigners with adverse affects on the u.s. income, output and standard of living. moreover, diminishing the investor confidence the deficits will be brought under control will ultimately lead to the sharp rising interest rates on government debt and potentially broad financial turmoil. in a vicious cire, i rise in interest rates would cause debt service payments on the federal debt to grow even faster, causing further increases in the debt to gdp ratio making fisl adjustment all the more difficult. how much adjustment is needed to report to be cut restoreo the united states? to help answer thisuestion it is useful to apply the concept of the primary budget deficit, which is the government budget deficit excluding interest payments on the national debt. to stabilize the ratio of the federal debt to the gdp of
convenient benchmark for assisting fiscal stability, the primary budget deficit must be reduced to about zero. under the cbo projected that i noted earlier the primary budget deficit expect to be 2% of gdp in 2015 and then to rise almost 3% of gdp in 2020 and 6% of gdp in 2013. these projections provide the adjustments the will be necessary to attain fiscal sustainability. to put the budget on a sustainable trajeory, policy action either reductions in spending or increase in revenue or some combination of the two must be taken eventually to close these primary budget caps. so by definition, the unsustainable trajectory of the deficit and debt is a cbo outlined cannot actually happened because creditors would never be willing to lend to a government whose debt relative to the national income is rising without limit. e economist herbert stein simply described the situation
he said if something can't go on forever it will stop. [laughter] one way or the other fiscal adjustments, sufficient to stabilizethe federal budget must occur at some point. the qestion is whether these adjustments will take place through a careful and deliberate of rocess that ways priorities and gives people adequate time to adjust to changes in the programs or tax policies or whether the needed fiscal adjustments will be a rapid and peaceful response to an elite or financial crisis. acting now to develop a credible program to reduce the future deficits would model the enhance economic growth and stability in the long run, but could also yield substantial near-term benefits in terms of lower long-term interest rates and increased consumer and business confidence. plants recently put forward by the president's national commission on the fiscal responsibility and reform and other prominent groups ovide a useful starting point for a much-needed national conversation. although these proposals differ
on many details, they demonstrate the realistic solutions to the fiscal problems ar available to the of course the economic growth is affected not only by the level of the taxes and spending, but also by their compositional structure. i hope that in addressing our long term fiscal challenges the congress and the administration will seek reforms to the tax policies and spending priorities that will serve water only to reduce th deficit but also to enhance the longer term growth potential of our ecomy. for a simple, by reducing disincentives to work and save by encouraging investment in the skills of the work force as well as the new machiner and equipment, by promoting research and development and by providing necessary public infrastructure. our nation cannot expect to grow its way out of our fial imbalances. but a more productive economy will ease the trade o that we face. thanks for your attention and i look forward to taking your questions. [applause]
>> thank you, mr. chairman. first of all we are extremely grateful for your decision to return to the national press club where you were here just a short time ago. we need it is important as a journalism organization that we have transparency in the government and to give reporters and others, the american public the opportunity to hear your thinking and respond to questions and real time as you are doing that, so think you. in that regard i ever see these discussions have alsosort of been occurring behind the scenes at the fed with your colleagues and there was a notation from a video conference of october 15th which said, and i love how some of the official languages displayed here, but it is participants discuss whether it might be useful for the chairman to hold occasional press briefings and provide detailed information to the public regarding the committee's assessment of the outlook and policy decision making that is
included in the committee's short statements. so it seems as if that is a very official way of saying should we be holding more news conference, should we go into places like the natnal press club. your colleague and central banking so to speak in europe told the news conference, what is your thought about regular news conference this as opposed to the piecemeal approach we are seeing right now? >> i think that sentence spoke for itself, don't you? >> absolutely. [laughter] >> let me say first -- ansparency is very important. it's important because we live in a democracy, and the public needs to know what you're doing and why we are doing it. it's important because our policies work better if markets participate and understand the actions we are taking and what is likely to cause changes in those picies and the like. the federal reserve has come at enormous distance. you may not be awar but in 1994 the fed didn't even announce
when it changed the rate target and now of course we have an after meeting statement with folks of like the european central bank in almost any other bank we have detailed minutes that release the weeks after the meetings. we release full transcriptf a five-year lag. we have extensive speeches and to some of these and other mechanisms, so we are a transparent central bank and we have made a lot of progress in that front. on press conferences, it has been a difficult decision as we thought about it. on the one hand, the real time transparency is very important and valuable piece of it all the other hand we don't want to create unnecessary uncertainty and volatility in the financial markets by saying things that may be misinterpreted if they are to ad hoc. that being said, as i said, i put a lot of vow to the entrance currency. we moved in the direction that we are looking very seriously at whether we have a committee in fact headed by vice chair janet
yellin looking at the chain of command occasions and i know they're looking seriously at the idea i would give a more regular press conference and the hope that would further increase the fed's transparency. >> suggest to update us on where that stands, how far into the future do you think a decision might come on that? >> not too far -- [laughter] the committee is working on it, and i think they will have some recommendations pretty soon. but never comes out the words or to the additional steps to make us more transparent and clear about what we ae doing and they will share those with us, right? >> absolutely. >> the next question is sort of about the personal side of the question andthat is this comes from the audience. one of the most frustrating things aboutbeing the chairman of the fed is in the world is hanging on your every eyebrow and the possibility of the financial marketi eat exuberate as your predecessor had to deal with way back when.
>> and what is your that seriously. this is a very chllenging job that we face, a very challenging period we have had enormous problems and issues with the financial markets and financial stability we have had to address. i believe the address them adequately in terms of stabilizing the system. now we have to implement a new se of laws rules to make sure that in the future we don't have this kind of instability again. at the same time, the economy although it does look to be growing more quickly is still in a deep hole and very far from where we would like it to become a and we need to manage policy of monetary policy and as i talked about today fiscal policy to try to bring us back to the employment and get back to work in a way that is consistentwith stability and in particular the continued low inflation so it is a challenging job and i have a great staff at the federal research and great colleagues on
fomc and in that respect is challenging and interesting from my perspective but it's frustrating because it takes a long time. it takes awhile to meet the progress in the economy that we would like to make. >> from today's headlines question from the audience do you believe any of the growing rest and lead the world especially to nisha and egypt is linked to higher food prices which the questioners as results from the fed's large scale purchases. >> i'm not going to address the first part of that. i don't have much insight into the sources of the unrest. i would guess thinking about asia for example but there's a lot going on including issues about democracy and representation and the broad economy and the like so i'm not sure i accept the premise of the question of what about food prices in general. when you talk about other prices you need to talk about the slide
demand, and in some cases sued for civil there are constraints on supply and there have been issues and so on but the most important development globally is the fact the world economy is growing more quickly. particularly in the emerging markets. we have essentially to speed recovery where the industrial economies like he united states are growing relatively slowly in the attack t industrial economies are just now coming back to the level of output and demand we were in before the crisis three years ago. so the countries are growing slowly the emerging markets are growing much more quickly. now, the federal reserve's three policy is aimed at stabilizing the united states economy and in the united states i don't think anybody can argue the economy is overheated and it igoing to quickly it is short of resources. we are using our policy to address stability in the united states.
so the question is where is the demand coming from? it is most the coming from the emerging markets. the markets are growing quickly for a couple of reasons. one is the factors will long-term trend for the emerging markets to develop quickly and that of the whole is very positive development because it means millions ofpeople who are in poverty are not moving closer and closer to a more middle class standard of living which is of course a very good thing but as people's dalia it's become more sophisticated and they eat more fish and beef and was greens the demand for food and energy and the like grows and that is the primary long-term factor affecting the price of commodities and food. the other factor is that in some cases some of the emerging markets are facing inflationary because their own economies are growing perhaps even faster than the capacity that is the policies haven't been such to keep the growth in capcity
balanced which means inflationary pressures are rising from those emerging markets. but i did it is entirely unfair to attribute excess demand pressures in emerging markets u.s. monetary policy because the emerging markets have all the tools they need to address excess demand in those countries. they can, f civil, use monetary policies of their own. they can adjust their exchange rates which is something they've been reluctant to do in some cases. so it is really up to the emerging markets to find the appropriate tools to balance their own growth. that being said, even the inflationary purchase in the markets the continued growth is continuing to put pressure on the prices of commodities including food arnold the world. but just one final comment on why the federal reserve policy cannot be primarily responsible was just that you asked about the middle east. food in egypt is priced in pounds, not dollars. if the dollar is weaker, the
egyptian pound is strong per commesso clearly what is happening is not a dollar affected is a growth of six premier li and the emerging market that is creating this demand for commodities which is driving up the relative prices of commodities. >> to lead the correlation sie for the moment, as you will get these unfolded of the world you see the price of oil rising, how do you see thatas presenting risk to the u.s. economy as you try to do your job? >> will we pay very close attention to the prices and the of the commodity prices because they do present really two kinds of risks. the first is the higher oil prices are kind of a text. we ae trying to stimulate the economy, trying to get consumers to become more confident, the able to spend more, and to help put people back to work, to the extent that part of their income
gains are drained away by higher gas prices or exceed all that going to be negate and is going t slow the recovery, so as the international factors lead to higher oil commodity prices that is a - rom the perspective of consumers and housold budgets and economic growth. the other place where it is an issue yet we are watching very carefully is what withstanding and i think a commodity price increase is primarily come from the global economy rather than the u.s. per say. nevertheless we have to pay attention to that because we also have a strong commitment to the stable prices and low inflation. right now inflation overall including food and energy ices is quite low in the united states and in fact almost any other industrial country not to metion the emerging market economies. that being said we have to make sure that it stays that way. higher energy prices add to the inflation because they raise the price of heating oil and gasoline and the like. even more serious, if they begin to feed into other prices, so
ford sibling they begin to feed into the wages or goods and services that areproduced using energy than you might get a broad inflation problem and we are absolutely deteined that we will do whatever is necessary to keep inflation low and stable in that in that respect that is a challenge we have to address. islamic in your speech you talked about the bond program. there was a time when the was thought to have referred to an ocean liner and now the first reference o the program somebody is asking do you attribute the stock market rise since late august and if not, why n and as a follow-up i might say the process of helping the u. economy filtering through various sectors of he economy as you go about engaging in that process? >> first to be very clear, the preface of the monetary policy is not to increase stock prices per say.
the purpose is to strengthen the u.s. economy to put people ck to work and create price stability, but the way the monetary policy always works is through interest rates and asset prices. that's how it works by changing the prices in the financial markets. so yes, i do think that by taking these securities out of the market and pushing investors into alternative assets we have led to higher stock prices and lower stock market volatility. by the way, when the last time we did this in march, 2009, was about a week before the asolute minimum where the standard was in the 600 following our actions the standard of the stock market grows quite considerably, yes, the policy is affecting the stock market really into ways. one is by lowering the essentially long-term yields and forcing investors into alternative assets, but also
because as this process has been working through and we have seen both in the earlier episode that a few months after we began the process to see the stronger economy, this time we began the process in august and no four or five months later we are seeing a stronger economy. as the markets see the strong economy materializing, that is incorporated into the expectations of the future economic activity, and that causes the market to rise as well so it is a circle in that respect. as i described in my remarks, the whole idea here is to move interest rates, moved the price is in the direction to stimulate more economic actity, put more people back to work and get rid of the risk of the inflation and create a stable price environment and if you look at the development, since august i ink thgs have moved in the right direction. >> is in the course of the extension from that is people want to know what you look at to decide whether to extend the
program tc. i think you said that it's possible the there were the extension beyond the current in the of the program, so what kind of things to you look at to decide where to go from here? >> welcome the first of all, as we noted in our staements and our commentary, we are reviewing the program on a regular basis. we want to make sure it is working as intended and it's not having any adverse side effects. to answer your question more generally, the approach is more or less the same as we always used. how we make decisions about the federal fund rate? what we do is our best to create an outlook for the economy. to say where are things going, where output going, where is inflation going, and we ask ourselves given the level of the monetary compensation we have now is the economy on a trajectory that will give the best possible outcome in the medium term. if not, if inflation looks to below or the deflation is the
or the output is low and unemployment is too high the would be a situation that requires stimulus. vice versa it becomes increasing problem of the economy is growing quickly that would be the reason to scale back. so in the same way that we addressed the monitor policy under normal circumstances in the ort term interest rate by looking at the outlook and trying to gauge whether the economy is growing at the pace consistent with the eventually returning to full employment and stable prics, by the same approach we look at that all halgand base on that we will either provide more stimulus as necessary or scale back or stay with what we have, so really not a simple answer. we have to use the best we can in terms of the forecast models to try to assess where the economy is headed. and get the same time perhaps the most politically charged question, that the unemployment situation you said it may be a matter of years before the unemployment goes down to the level that is considered to be a more normal.
is that something that you look at as you decide whether to extend or not? >> well, certainly. half of our mandate is maximum employment, and we want to get the labor market's coming you know, worki again, and better if we can. it's very important because not only is 9.5% unemployment a very large waste of human resources and a very taxing burden on many families around the country, but about 45% of all of the unemployed had been unemployed for six months or more. and what that means is that if they don't find work in the next six months or two years, if they find work again in the future it could very well be at a much reduced wage or part time. people who are not employed for long periods of time lose their skills and connections and their knowledge of what is happening in their particular line of work. so the consequences coullast a long time so it is important to put people back to work as quickly as we can. it's going to take a while.
the very nature of this is that the economy has to grow about 2.5% just to accommodate people coming intohe labour force, so in order to keep the unemployment rate constant we need about 2.5% growth. back in august when we were thinking about the policy, growth was looking like it was around to come so we are looking at a situation where the rate would begin to rise again. so in order to get the growth above the 2.5% mark, we embarked on these new policies and we are looking forward in 2011 we think it will b about 2.5%, therefore we expect to see it declining over time. it is not going to be as fast as we would like the of the other hand as i mentioned, there is good news. i think there are a lot of indicators including we had once again this morning the new claims for unemployment insurance which is a pretty good number looking at whole range of statistics on the labour market. the sense is that employers are becoming more willing to hire
and i feel we will start seeing some stronger payroll reports and lower unemployment rates pretty soon. >> another question from the audience talking about the same program said you announced purchases before the congress passed the tax cut extension, the payroll tax holiday and several other significant stimulative measures. as that given the fed any reason to consider ending your latest program early? >> as i mentioned earlier we try to mcginnis as that of the outlook and based on that we decide whether or not we are where we should be or whether we should do less for so long and in this particular case when you are making our projections we have already taken into account most of what is in that package. we had anticipated the bush tax cuts would most likely be extended if least in large part. we had participated in the insurance woud be extended at least in large part.
part of the package that was surprising and thus create additional stimulus is the payroll ta rebate. as we factor that into our analysis and of course on the margin we will respond to the way that fix the outlook but it wasn't that we were surprised by this package. we expected a lot of it to happen and the was built into our forecast when we need now for policy decisions. >> you referenced the jobless claims numbers and obviously the data flows on the nearly daily basis. what do you think is the single biggest thing if there is such a thing holding back the companies fr increasing the hiring right now? >> there's a lot of factors. it isn't simple. certainly one issue is, and perhaps one key issue is the uncertainty about how much the demand is going to be. remarkably, at the beginning of the downturn firms lay off large
numbers of workers and they were able through very significant productivity gains to meet existing demand with fewer workers and only the demand had began to grow beyond the level before the recession began has there been any pressure on the firms to begin to add the work force? swahili now they are beginning to see women that we are now seeking enough increase in our sales, and we have already exhausted the obvious productivity gains it's time now to start bringing on new workers, so that uncertainty about the duration and the stability of the recovery has been the key factor explains why, for the disabled, they have been using a lot of temporary workers because they can bring temporary workers if the economy weakens again they can let them go. it will be a really good sign when we see the tiberi signs been converted into permanent jobs, and i am hopeful that is where we are going to be headed in the next couple of quarters. >> so, you have been exporting
congress and essentially the federal government to attack the fiscal situation sooner rather than later. we have seen what happens in europe if you don't do that. what do you think the risk is that inde the financial markets force the solution before the lawmakers and our administration to it themselves? >> it's really impossible to give a projection. right now the markets seem to be behaving as if they think these problems will be addressed in the sense the u.s. government can still borrow at reasonable interest rates. so, evidently investors believe that the u.s. economy is strong enugh and that our political system is able to deliver stabilityin our budget situation over the medium term. in one respect certainly they are right in that this is a very, very wealthy productive
economy and there is say no sense that we are economically unable to find a solution to these problems. we are rich enough and have enough resources that we can find those solutions. no question about that. some of the commission's we have seen for a simple wehave put out some plausible possibilities. i am not endorsing any particular one of the demonstrated here are various ways we could go about doing this without reading the part of r social safety net and without radically raising the xes etc., etc.. so it can be done. i think the question will be do we have the political capacity, the political will to do it, and i think that is what the markets will be following, and indeed in europe it has been less a question of resources. everyone believes that europe s the resources to meet the sovereign debt claims and it has been a question of will the country's demonstrate that they have the will to collaborate together to solve these
probms. i believe they will. but it's really that political uncertainty which is the key issue for the markets, not so much the economic capacity. >> ve you seen any evidence of any time in the past that there is political will of that magnitude to attack a problem of this size? >> it's difficult to say. i think there is a lot of interest. there has certainly been a number of members of the senate and the house who have for years been talking about these issues and have pressed for taking steps to address them. clearly there is considerable interest in the general public and trying to address these questions. so i wouldn't -- i am not a political prognosticator and i wouldn't try to make an assessment but i know there's an increasing understanding of representatives in congress and in the administration and in the public that these are important issues and that there is only so far we can kick the can down the road.
we have to address this and the sooner we do it the less painful it will be and the better it will be for our economy. some of them there are more near-term issues. the one questioners as to not become a true policy but will the fed policy have to be adjusted if there were shut down of the government house some politicians are threatening does the fed had enough options to get friends of the government shut down the private sector to the contractors leave off workers and adversely impacting other channels. >> just to be accurate i think is being complicated is not a shutdown of the government, but a refusal to ratify the debt limit extension and this is a very serious mtter because under the current law, if the debt limit is not extended for a time the treasury has various resources that it can use to make payments on a national debt, but beyond a certain point it wouldn't have those resources
and the united states could conceivably i think this is very remote but it's not something you want to play around with the united states would be in a position of defaulting on its debt, and the implications of that for a financial system, our fiscal policy, for our economy would be catastrophic. so i would very much urge the congress not to focus on the debt limit as being the bargaining chip in this discussion but rather to address directly the spending in the tax issues that we all have to deal with if we are going to make progress on the fiscal situation. the debt limit itself is again something where we need to be very careful the we don't create any impression that the ited states is not going to pay its creditors the interest on the national debt. that would be again a very far that outcome. >> we talked of the legislation percolating on capitol hill.
can you talk about where the policy stands now by virtue of the dodd-frank legislation and what you think some of the proposed legislation is not the right thing to do? >> the dodd-frank legislation with the fed cooperation and a lot of other fed is initiatives has basically created a completely transparent fed as far as financial concern. people say all that the fed, with the neeis open the books. what is the transactions. currently, every program that we initiated during the crisis has been completely open to the gao. all the information has been provided to the public. december 1st we put out a record of all 21,000 loans that we made during the crisis. all 21,000 which by the way were paid back with interest explain what the program was and what the criteria, the bar were, the collateral, when was it repaid,
we provide a weekly statements of our balance sheet, we have an outside auditor which comes in and audits the books and publishes all the information every year. so every aspect of the fed financial dealings are wide open and wehave invited the gao to come in and ook at all of our activities come extraordinary activities during the crisis, and all f our ongoing activity. so there is no sense in which the fed has a secret financial dealings. all of our assets and transactions are open to the public and will be open to the public and i've committed to that transparency. no, what audit the fed means in the language that has been used by some members of congress is not about the financial fed rather it is about auditing the monery policy which mea the gao would be assigned by the congress to look at the monetary policy decisions to take the
material prepared for the meeting to depose potentially the members of the meeting to essentially provide an evaluation to the congress in a very short horizon of whether or not the fed was making the right monetary decisions. i feel this is different from what most people think about 20 feet above anudit, and what this is basically is a very sick again challenge to the notion that while the congress has every right to set the goal and objective of the federal reserve and the tools of the federal reserve it should be up to the fed to make monetary policy decisions independently of short-term political influences and with him on towards a long-term objective ofhe economy. and with that kind of legislation would do is nothing to do with financials. would be very much a psychiatrist at words direct congressional oversight of the decision process itself and personally, i think that would
be very bad outcome. we have seen around the world that in the empirical evidence and practical evidence to support this the the central banks the independent in their decision making and have a clear mandate provide a much better outcome both in the economy and financial market than a central bank which is dictated by whose decisions are dictated by the political considerations of that is something i think is extremely important principle. >> is this sort of pressure coming from the outside helping to you might you with yr colleagues on the federal see board at ll? clinical this issue every member of the federal reserve both current and past fighting would be extremely united. this is a fundamental bedrock principal of the banking, and if the federal reserve becomes essentially an arm of congress seeking monetary policy decisions i think that would
lead to worse outcomes in terms of inflation and stability in the u.s. economy. >> here's a banking question. bankers say the leaders and regulators in washington are telling them to lend more of the bank of lovell the senators and life deal with on a day-to-day basis are concerned with the financial health and less with promoting lending. what are y doing about the disconnect? >> this is an issue that we have been very focused on for quite a long time. there is a problem here which is we don't obviously want banks to make bad loans. we don't want lone star not wait to get paid back. we want sound loans. on the other hand, when you have a creditworthy borrowers coming and asking for credit it's in the intere of the bank and the borrower and of the whole economy that they get made. so we need to find the appropriate balance between loanthat are appropriately proven safe on the one hand but the creditworthy borrowers are able to get credits.
and we have, working together withthe other bank regulators going back several years now we have been providing extensive guidance both to the banks and examiners about how to make an appropriate balance. we have done a large numbers of training class is, we have asked the fed banks to call in and talk about their concerns. we've had meetings all across the country to meet with bankers and small businesses to talk about issues that have arisen as we have put an enormous amount of resources into trying to find the right balance and i feel we've made a lot of progress frankly and i would suspect as we look forward to 2011 and on that we would see increased willingness to lend and examiners wouldn't be an issue if there are good loans to be made it's very clear the should be allowed to make them and we would encourage them to make them.
seabeck some housekeeping matts we are almost out of tibet before asking the last question very important matters to take care of. i want to remind members and future speakers the comedian and humor is the voice of the simpsons will discuss media myths on march 14th. we might even try to get into a few voices for us and then the voice of taxaon the commissioner of the irs will be here before the tax deadline. second, i have some walking away gifts for you. more than one. i would like to present you with the traditional coffee mug which my understand you have had once before but nevertheless we would love for you to perhaps share that with a loved one. [laughter] we will be watching each day to make sure that it doesn't show up. [laughter] than we though to have been so kind to join us on multiple locations we want to provide you with the unusual highly coveted national press club baseball cap. [applause]
the last question, having you here today is a big deal for us, for me since i've been covering business and economics for many years now it is a little like the super bowl for business journalists speaking of which the super bowl this weekend and i'm wondering first do you watch football and you have a favorite in the game between pttsburgh and green day which will be in dallas. >> i definitely do watch football and baseball season is in there of any way and i am looking forward to the game. the redskins didn't make it this ar once again unfortunately. [laughter] so i will be objective although i do know one of the teams has a quarterback named ben. [laughter] i'm looking forward to the game and i think the gdp will drop to nothing during that three hour span. [laughter] -- before, mr. chairman. [applause]
>> thank you for being a good sport. we would like to think the national press club staff including the library and broadcast center for organizing today's event and for more information about joining the club or how to acquire a copy of today's program please go to our website at www.press.org. thank you, we "washington journal" is next. at 10:00 eastern, congressional oversight hearing on commercial real estate effect on bank stability. in a few moments, we will have the latest on unrest in egypt and talk with republican senator roger wicker of mississippi. an hour-and-a-half, senator jeff an hour-and-a-half, senator jeff